By Riya Sharma
September 21 (Reuters) – The Philippine peso hit a record low against the dollar on Wednesday as most other Asian currencies fell ahead of a U.S. Federal Reserve interest rate decision that would set the pace in financial markets for months.
The Chinese Yuan CNY=CFXS weakened to a 26-month low as investors braced for an expected sharp hike in interest rates from the Fed.
Asian stocks also lost ground, with the Manila benchmark .PSI falling more than 2% to drive losses among regional peers, while shares in Kuala Lampur .KLSE and Mumbai .NSEI were down 0.8% each and Jakarta shares .JKSE fell 0.9% to a three-week low.
The U.S. central bank is expected to announce its rate decision later today, with rate futures traders forecasting an 81% chance of a 75 basis point hike and a 19% chance of a 75 basis point hike. tightening of 100 basis points. FEDWATCH
The dollar hovered near a two-decade high against a basket of currencies, after yields on US Treasuries, a rough indicator of rate expectations, jumped ahead of the Fed’s decision. USD/WE/
Rising yields bolster the dollar, increasing the appeal of Treasuries and the greenback, in turn weighing on riskier Asian assets.
Investors in Asia are also awaiting policy decisions from central banks in Indonesia, Taiwan, the Philippines and Japan this week.
While central banks in Indonesia, Taiwan and the Philippines are expected to raise rates, the Bank of Japan is expected to stick to its accommodative monetary policy despite the sharp drop in the yen JPY=.
The peso PHP= fell 0.8%, while the Taiwanese dollar TWD=TP and the Indonesian rupiah RDI= lost 0.3% and 0.2% respectively. The Japanese yen JPY=which has fallen nearly 3.4% so far this month, was trading flat.
“Foreign investors in Philippine equity markets have been selling their holdings, and these massive outflows have been the main contributor to the peso’s exasperated weakness recently,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.
The half-point interest rate hike expected by Bangko Sentral ng Pilipinas (BSP) on Thursday is unlikely to ease pressure on the struggling peso, Tan added.
He said the central bank has been raising rates since the first quarter and “that’s not going to help the peso because there’s a bigger macroeconomic backdrop pushing the US dollar higher.”
Elsewhere, Taiwan’s central bank recently agreed to allow several major life insurance companies to transfer earnings from their investments overseas, in hopes of stemming the depreciation of the local dollar, Reuters told Reuters. four sources familiar with the case.
** South Korea’s central bank has denied a local online media report that a currency swap deal with the US Federal Reserve would be announced as early as this week
** Indonesian benchmark 10-year yields ID10YT=RR up 0.2 basis point to 7.2%
Asian Stock Indices and Currencies at 0708 GMT
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Chart: World exchange rates https://tmsnrt.rs/2RBWI5E
(Reporting by Riya Sharma in Bengaluru; Editing by Rashmi Aich)
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